The U.S. economy is growing modestly at best, yields on bonds are low and the economic outlook outside the U.S. is uncertain. For the year 2012 and beyond, one fitting investment idea could be real estate investment trusts (REITs), according to PNC Investment and Wealth Management.
REITs, like stocks, are publicly traded entities. They primarily make money through owning and managing commercial real estate property.
They usually pay high dividends. Like other dividend yielding stocks, their dividends can potentially rise or fall, as can their share prices.
One reason REITs could be a good investment idea for 2012 is that they handily outperformed the S&P 500 Index and many other financial instruments in 2010 and 2011.
Over the last decade or so, REITs’ total returns trounced that of the S&P 500.
The dividend growth rate of REITs, moreover, has historically outpaced inflation.
Moreover, according to PNC, REITs generally have “modest correlation with stocks” and “less market price volatility.” For example, from 1980 to 2010, REITs’ correlation with the S&P 500 was just 0.55, according to the National Association of Real Estate Investment Trusts.
REITs' income flows, too, tend to be more stable than those of other companies because the money is secured by long-term lease agreements.
PNC also pointed out that REITs seem fairly valued with their net asset value (NAV) to prices hovering at a 4 percentage points discount compared to the long-term average (98 percent to 102 percent).
REITs, of course, faltered like most financial instruments during the recent global financial crisis, when correlation spiked across the board for diverse assets and nearly all risk assets lost value.
However, assuming the U.S. economy continues to grow in 2012 and beyond, even if at a modest pace, REITs might be a good buy-and-hold investment idea for the long-term.